Solar PV in the rural area (Nur Wahyu Tomo, IEC 2019).
COVID-19 has been a black swan event in 2020 and has disrupted the energy sector too. Energy demand dropped by 8% compared to the first quarter of 2019, as reported by IEA (IEA, 2020). The oil and gas sector is predicted to be the most impacted sector with mobility restriction applied in several countries. In IEA prediction, the demand for oil is expected to reduce by 9.1% as shown in Figure 1. Meanwhile, coal demand also down by 7,7%. Interestingly, IEA predicts renewable energy demand will increase by 0.8%. The reasons behind this are low operating cost and prioritized access for the grid in some countries, especially in developed countries.
Figure 1. Energy demand projection for 2020 (IEA, 2020).
The pandemic pulls down the energy commodities price. Oil price also was highly volatile during the first quarter of 2020 as the result of low oil demand and reluctancy of some OPEC+ countries to cut their production. Newcastle coal price dropped by almost 20 USD/ton between April and May, as consumption of China, the largest user, and importer of coal, was slowing down.
Project delay is inevitable, not only for fossil energy projects but also for clean energy projects. A combination of low demand and low energy price shocks energy companies’ revenue. Lower revenue has been a setback for new project development. Investors will take their time to rethink future investment plans.
The pandemic puts question marks on every country’s energy transition measures to shift clean energy.
This unprecedented pandemic leaves the country with two options. First, countries could take the option to grow the economy by relying on conventional energy. The second option is to stay to clean energy commitment and integrate clean energy as a tool for recovery.
The fossil fuel price drop makes renewables less attractive. WTI crude oil price even reached a negative level in the mid of April (BBC, 2020). Meanwhile, coal prices plummeted by 20USD/Ton in one month from April to May 2020 (Nichols, 2020). Even though the fossil energy price has slowly climbed, the low price has put renewable investment in pressure. In developing countries, oil subsidies also incentives the use of fossil energy.
The government in many countries has its eyes on the health care system and economic recovery (OECD, 2020). They shift budget to fund health supplies and social safety nets. Those shifting may result in a reduced budget for other sectors, including the energy sector. Recently, Indonesia cut the budget of its Directorate General of New and Renewable Energy and Energy Conservation (Kompas, 2020). The condition could leave the country’s energy transition and emission reduction path hanging.
Lack of focus on energy transition will push back the emission level back to normal. Even though global emission was reported to drop, it is a temporary condition. The emission reduction has no relevance with new government efficiency or decarbonization strategy (Birol, 2020). It has to do with the lower energy consumption during the pandemic. Economic rebound is expected to push the energy demand, and emission grows.
Interestingly, a new joint report between IEA and IMF suggests that integrating clean energy to recovery plan brings a sustainable recovery (IEA, 2020). A sustainable recovery plan aims for economic recovery while decelerating emission rebound. By focusing investment on modernizing grids and increasing energy efficiency, the country could enhance energy security and resiliency, integrate more renewable energy, and cut energy loss. A sustainable and resilient energy system will put stronger resistance for future crises.
This could be a proper timing to shift to clean energy. The volatility of the oil market is concerning. Lower oil prices and demand require companies to adjust or even to stop their operation. On the other side, renewables, such as PV and wind, has an opportunity with its shorter investment cycle and environmental benefit (IEA, 2020). IEA also estimates clean energy projects will grow global jobs by 9 million per year.
Countries should focus on maintaining and creating local demand for renewable energy technology. An interesting example is Malaysia. During the pandemic, Malaysia took the path by a new 1GW solar tender by incorporating small and local companies (Martin, 2020). With this strategy, the country could keep both renewable industry and emission reduction plan running.
Another view, countries could see the pandemic to increase electricity access to rural people where sanitation and health facilities are lacking. Countries could focus on providing off-grid electricity for remote areas by locally sourced renewable energy. Currently, the diesel power generator is still a favorable option for remote electrification, especially in developing countries. Interestingly, renewable is a suitable replacement for the diesel generator in the off-grid area considering renewable’s competitive LCOE and its absence of fuel transportation issues (Taufiqurrohman, 2018). Transporting fuel is problematic, especially with unpredictable weather and road conditions for a remote location. Providing stimulus in this measure will be essential to empowering rural people while keeping them benefitted from the clean environment.
Pandemic has been lowering private’s investment. In the short term, the government budget is a viable option to keep the clean energy project on track. Keeping the allocated renewable budget is the first step for sustainable recovery. The budget should maintain the demand for renewable projects and keep the renewable industry running.
In the longer term, supportive regulations are crucially needed to untap a higher potential of renewables. The pandemic has decelerated energy project. Without government intervention, achieving renewable goals will be much harder before the pandemic strikes. Depending only on government budget is not the best path either for the foreseeable future. Privates should take a more significant portion of renewable projects considering the government’s limited budget.
BBC. (2020, April 20). US oil prices turn negative as demand dries up. Retrieved from BBC: https://www.bbc.com/news/business-52350082
Birol, F. (2020, March 14). Put clean energy at the heart of stimulus plans to counter the coronavirus crisis. Retrieved from IEA: https://www.iea.org/commentaries/put-clean-energy-at-the-heart-of-stimulus-plans-to-counter-the-coronavirus-crisis
IEA. (2020). Global Energy Review 2020. IEA.
IEA. (2020). Sustainable Recovery. IEA.
IEA. (2020). World Energy Investment 2020. IEA.
Kompas. (2020, June 23). Dipangkas Rp 3,4 Triliun, Anggaran Kementerian ESDM Tinggal Rp 6,2 Triliun. Retrieved from kompas: https://money.kompas.com/read/2020/06/23/121835526/dipangkas-rp-34-triliun-anggaran-kementerian-esdm-tinggal-rp-62-triliun
Martin, J. R. (2020, June 1). Malaysia eyes pandemic recovery with 1GW new solar tender. Retrieved from PV Tech: https://www.pv-tech.org/news/malaysia-eyes-pandemic-recovery-with-1gw-new-solar-tender
Nichols, L. (2020, May 11). Thermal coal prices drop to $US51/tonne – a fall of nearly $20/tonne in a month. Retrieved from Musswellbrook: https://www.muswellbrookchronicle.com.au/story/6752083/coal-prices-drop-to-2015-levels/
OECD. (2020, June 10). Global economy faces a tightrope walk to recovery, says OECD. Retrieved from OECD: https://www.oecd.org/coronavirus/en/
Taufiqurrohman, I. (2018). The Assessment of Off-Grid Photovoltaic (PV) Systems for Rural Electrification in Indonesia. Hanover.
*This opinion piece is the author(s) own and does not necessarily represent opinions of the Purnomo Yusgiantoro Center (PYC)